FPI inflows reach ₹33,000 crore since July as AI trade rotation favours India

Foreign portfolio investors have channelled approximately ₹20,000 crore into Indian equities in July and a further ₹12,921 crore in the first week of August, marking a sharp reversal after months of sustained selling. The shift coincides with a cooling of the semiconductor-driven rally that had previously pulled capital toward Korea and Taiwan.

Ritesh Taksali, speaking to market participants, argued that the earlier FII outflows were largely a rotation into AI and semiconductor exposure rather than a structural rejection of India. As that trade matures and valuation gaps widen, he said global investors are "beginning to look for other markets" with diversified, domestically driven growth.

Valuations reset below long-term averages

The Nifty's trailing price-to-earnings ratio has fallen to 20.8x, roughly 9 per cent below its seven-year median and 12 to 13 per cent beneath its ten-year average. India's weight in the MSCI Emerging Markets index has also retreated from a peak near 19.4 per cent in late 2024 to its long-term average of about 11.8 per cent, unwinding much of the exceptional premium that had built up during the prior rally.

Taksali cautioned that India need not trade at parity with other EMs, given the breadth of its earnings base across financials, consumption, manufacturing and infrastructure. But he acknowledged the premium has become "more reasonable" after a period of relative underperformance.

Earnings and capex as forward catalysts

June-quarter results delivered a broad-based beat, with aggregate sales growth of 22 per cent year-on-year and profit growth of 11 per cent. Margins held up despite elevated raw-material and freight costs, as companies offset pressure through price increases and operating efficiencies. Management commentary points to further improvement in the second half, supported by festive-season demand and easing input costs.

Private capital expenditure, which has lagged for 12 to 18 months amid geopolitical uncertainty, is expected to revive gradually. Taksali framed a broad-based capex cycle not as a near-term earnings risk but as "a critical upside catalyst" that could materially improve earnings visibility through FY27 to FY29.

Policy backstop supports the rupee

Macro conditions are reinforcing the flow reversal. The FCNR-B deposit scheme has mobilised around $41 billion so far, with potential inflows of $70 billion to $90 billion by its 30 September closure. A tax exemption on interest income from Indian government bonds for foreign investors has already drawn roughly $8.7 billion into G-Secs. Together, these measures have helped stabilise the rupee and reduced concerns about capital-flow volatility.

For investors weighing EM allocation into 2027, the combination of compressed valuations, improving earnings momentum and a policy framework actively courting foreign capital positions India as a primary beneficiary of any post-AI rotation in global portfolios.